Aberdeen office sector facing ‘perfect storm’

Aberdeen’s commercial property sector is facing a “perfect storm” as incentives for occupiers in the city hit record levels, according to the latest Aberdeen Office Market Activity Report from Knight Frank.

The research pulls together data from 2015 and looks forward to prospects for 2016 — and the headline figures include a 61% fall in the take-up of office space and an 82% fall in investment volumes year on year.

In the face of sustained low oil prices and massive cuts across the oil and gas industry, demand for office accommodation in Aberdeen tumbled in 2015 “at the same time as supply levels in the north-east of Scotland climbed towards the highest ever levels,” said Knight Frank.

Knight Frank partner Eric Shearer said: “In any market a fall in demand coupled with an increase in supply represents a significant hurdle and that is exactly what we faced in Aberdeen in 2015.

“That will continue in 2016 and it would be remiss to attempt to put any gloss on the data our research team has published … the figures speak for themselves.

“The most important thing is to use the information to focus minds and ensure a positive response.

“Those of us involved in the Aberdeen market have been through difficult cycles in the past and at Knight Frank we are committed to working through this one on behalf of our clients.

“All statistics have to be taken in context and whilst we have seen significant drops across the board when compared to what was a record breaking year in 2014, the take-up levels have dropped to around those we had in 2010 — so to suggest it is a complete collapse of the market would be wrong.

“That said, nobody is burying their head in the sand and this is an incredibly tough time.”

The slump in the energy industry has had a major impact on Aberdeen’s performance in the UK-wide regional office markets, with take-up down 30% on the 10-year average (583,500 sq ft) — compared to a near 50% increase in Sheffield, the top performing regional city.

Bristol and Aberdeen were the only cities to post negative figures in 2015.

Katherine Monro, a partner in the Aberdeen office of Knight Frank, said: “Office take-up in 2015 totalled just 401,000 square feet and with available space sitting at over two million square feet it is clear that supply does, and will continue, to outstrip demand.

“In recent weeks Knight Frank has concluded two lettings at the AB1 complex in the city centre to public sector organisations and that type of diversification will be important in the current conditions.”

Rents in Aberdeen remained static at £32 per square feet in 2015 — although that figure does not take into account incentives, meaning net effective rents have fallen and are expected to continue to fall.